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Deemed and out of contract rates are the most expensive way a business can buy energy, and most firms land on them by accident rather than choice. They apply automatically when a contract ends or when you start using energy at new premises without agreeing a deal, and the supplier sets the price at whatever level they choose. This guide explains what each one is, why they cost so much, and the quickest way off them.
In short. A deemed rate applies when you use energy with no contract in place, usually just after moving into new premises. An out of contract rate applies when a fixed deal ends and you have not signed a new one. Both are default rates set by the supplier, both are among the priciest on the market, and both can be left the moment you agree a new fixed deal.
Deemed rates. These apply when you take a supply with no agreed contract at all, most often when you move into a property and start using the gas and electricity the previous occupier left connected. You are deemed to have a contract with whichever supplier serves the site, on their standard default terms.
Out of contract rates. These apply when a fixed term deal reaches its end date and you have not agreed a replacement. You keep the same supplier, but you roll onto their default variable rate rather than a price you actually chose.
The practical effect is the same in both cases. You are on a rate you did not negotiate, it is usually the highest the supplier offers, and it can change with little notice.
Default rates carry a risk premium because the supplier cannot predict how long you will stay or how much you will use. Suppliers buy energy in advance, so an unpredictable customer is more expensive to serve, and that uncertainty is priced into the unit rate and the standing charge. There is also no competitive pressure on the price, because you have not shopped around for it.
The result is that deemed and out of contract unit rates commonly sit well above a fixed deal you would be quoted for the same site, with a higher standing charge on top. It is rarely a dramatic figure on any single day, which is exactly why it goes unnoticed, but it is paid on every unit you use until you act.
Almost no one chooses a default rate. You land on one through timing or admin rather than decision.
✓ You moved into premises and started trading before arranging your own contract.
✓ Your fixed contract ended and the renewal slipped past its deadline.
✓ A contract you believed was in place was never actually completed.
✗ Assuming a supplier will move you to a fair rate on its own. It will not.
✗ Ignoring renewal letters, which is how most out of contract rates begin.
You are not locked in. Ofgem rules mean deemed and out of contract customers are not tied to a fixed term, so you can agree a new deal or switch supplier at any time, and there is usually no exit fee to leave a default rate.
Micro businesses have extra protection. If your business uses less than 100,000 kWh of electricity or less than 293,000 kWh of gas a year, or has fewer than ten employees and turnover under 2 million euros, it counts as a micro business. Your supplier must then tell you your contract end date and the notice you need to give, which makes it far easier to avoid rolling onto a default rate in the first place.
If your bill says deemed or out of contract, treat it as a priority, not a background task. Every day on that rate is a day of paying close to the highest price on the market for something you can usually fix in an afternoon.
Imagine a small unit that uses 25,000 kWh of electricity a year. If a deemed rate sits several pence per kWh above a fixed deal, that difference is multiplied across every one of those 25,000 units, with a higher daily standing charge added for all 365 days on top. The overpayment is small on any single day, which is why it slips by, but across a full year on a default rate it becomes one of the largest avoidable costs on the account. The longer you stay, the more it quietly adds up.
1. Find your meter numbers. Locate your MPAN for electricity and MPRN for gas, printed on any recent bill. Suppliers need these to quote you accurately.
2. Note your usage. Take your annual consumption in kWh from a bill or annual statement, so quotes reflect your real usage rather than a rough estimate.
3. Compare the whole market. Get quotes across suppliers rather than accepting the renewal your current supplier offers, which is rarely their sharpest price.
4. Agree a fixed deal. Lock a unit rate and standing charge for a term that suits you, so you are no longer exposed to a default rate.
5. Diarise the end date. Put the new contract end date in your calendar with a reminder a few months before, which is the single habit that keeps you off default rates for good.
No. Deemed and out of contract customers are not tied in, so you can agree a new deal or switch supplier at any time, normally with no exit fee.
Agreeing a new fixed deal is quick, though the switch itself can take a few weeks to complete. You benefit from the agreed rate once the new contract goes live.
Usually not, because you are not in a fixed term. Always confirm with your current supplier before you switch so there are no surprises.
Deemed applies when there is no contract at all, typically just after moving in. Out of contract applies when a fixed deal has ended and you have not signed a new one.
Record your contract end date and set a reminder several months ahead, then compare and agree a new deal inside your renewal window rather than letting it lapse.